With A New President, Can The Maldives Escape China’s Debt Trap?

Elections in the Maldives last month witnessed the unexpected ouster of incumbent president Abdulla Yameen. Ibrahim Mohamed Solih, the consensus candidate backed by the country’s major opposition parties, secured a resounding victory at the polls despite widespread fears to the contrary.

After assuming power in 2013 following a coup against the country’s first democratically elected leader the year before, Yameen spent his six-year presidency largely dismantling democracy at home while embracing China abroad. Many saw China’s gain as India’s loss, which has historically enjoyed robust commercial and foreign policy ties with the Maldives. Beijing recognized that forging closer relations with Yameen’s government allowed it to expand the reach of its controversial Belt and Road Initiative.

Toward this end, Beijing financed questionable infrastructure projects across the archipelago, took long-term leases on several islands, and struck a free trade deal with Malé in 2014, eventually replacing India as the nation’s largest trading partner. New Delhi watched with growing alarm as Chinese investment—and influence—spread throughout the Maldives.

The Maldives appeared to fall victim to China’s so-called “debt-trap diplomacy” in which Beijing seeks to render countries economically and ultimately strategically dependent on it by extending to them massive development loans they are unable to repay. Several nations in the region have similarly found themselves ensnared by Beijing’s debt trap, including Pakistan, Sri Lanka and Myanmar.

The situation represented a remarkable turnaround for New Delhi considering the Maldives’ immense significance to India. New Delhi has taken great pains to carefully manage its relationship with Malé. Beijing’s rapidly growing footprint across the island was just the latest phase of the ongoing competition between the two Asian powers.

The struggle for influence between India and China came into sharp focus earlier this year after Yameen imposed a state of emergency on the island, plunging the Maldives in a constitutional crisis. Beijing implicitly blessed the draconian measure and Maldivian opposition parties implored India to take military action and restore democracy. Despite overwhelming public pressure to the contrary, officials in New Delhi declined to intervene. Critics questioned the wisdom of inaction, but the election outcome appears to have vindicated India’s decision at least in the short term.

Shortly after Solih’s win was announced, the new Maldivian leader quickly reaffirmed his country’s close ties with India. Many viewed this pronouncement as portending the restoration of the old, pro-Indian status quo and heralding the beginning of the end for Chinese influence in the Maldives. A slew of Indian newspaper headlines triumphantly declared that India had finally scored a win over China.

Such a victory lap is both premature and unjustified. To be sure, the electoral results create some much needed strategic space for India to re-establish a degree of influence in the Maldives by engaging Solih and his new administration. The Modi government has been afforded a genuine opportunity to change the governing dynamics and forge a new pathway forward.

The simple facts remain, however, that Beijing still holds considerable leverage over Malé and will continue to exercise it for the foreseeable future. The reality is that the Maldives has borrowed heavily from China to finance infrastructure and other related projects, and that fact alone will ensure its continued influence over the island. According to some estimates, China holds more than 80% of the Maldives’ sovereign debt accounting for nearly a quarter of its GDP.

As a result, the Chinese will seek to exert maximum pressure over the archipelago even as a new government prepares to take power. Solih’s perceived preference for India over China will ultimately matter less than the staggering amount of money Malé owes Beijing.

It is also important to recognize that India is unable to compete with Beijing’s ability to meet the Maldives’ infrastructure demands. This is another key reason why India will not displace China in the Maldives anytime soon. The absence of other viable development financing options in the Indo Pacific helps explain why China’s debt trap strategy has reaped such profitable dividends for Beijing.

The predicament underscores the importance of India, in addition to other like-minded countries, generating other sources of financing to the Maldives. Officials in India, Japan, the U.S., and the E.U. have long discussed mechanisms aimed at increasing overall investment in the Indo-Pacific. They will have to convince its neighbours that more attractive alternatives to Beijing exist. This remains a long-term strategy.

Moreover, it is unlikely the Maldivian president-elect will be able to negotiate better terms on the huge debt incurred by his predecessor as some have suggested. Sri Lanka’s experience in it is instructive. Colombo fell victim to China’s debt trap during the reign of the former Rajapaksa government in a manner reminiscent of Yameen’s own experience. President Sirisena swept to power in January 2015 partially on a platform promising to reduce the country’s dependence on China and restore some equilibrium to country’s foreign relations.

Despite his best efforts, President Sirisena was ultimately forced to confront the harsh realities of Beijing’s deb-trap diplomacy after he was compelled to transfer control of its strategically situated Hambantota port to a Chinese state-owned company under a 99-year lease deal. Sri Lanka was unable to repay the crushing debt the country incurred from Beijing to have it constructed in the first place and effectively exchanged a piece of its sovereignty to meet its debt obligations.

Whether New Delhi can help pull Malé out of its debt trap is a question whose answer will be measured in years, if not decades.

With debt of over one billion dollars there is no way tiny Maldives with its miniscule economy will be able to escape the Debt Trap anytime soon. Prepare to be screwed for the next fifty years like Sri Lanka. India has not taken any loans from China for its massive infrastructural works nor has it joined the much touted Belt and Road Initiative yet its economy is growing at a faster rate than China’s. India should not be dishing out low interest loans to Maldives nor donate hospitals and helicopters. After all the anti India anti hindu campaign of the… Read more »